The past year has been incredibly tumultuous, having reset the international stage and delivering incredibly unexpected political outcomes. From an international legal perspective, while events such as Brexit, Donald Trump’s election, and the crisis in Syria have undoubtedly raised important legal questions and will likely change international law in the future, there have been numerous other significant developments.
The politics of nuclear disarmament have, in recent times, simmered as a threat to the international order, enlivened every so often by a new round of talks or a major push for reform. On rare occasions, the issue has spilled into the international legal sphere.
Prior to colonisation, African peoples and Australian Aboriginal and Torres Strait Islander peoples lived in close connection with the land and environment, and governed themselves according to their own complex systems of law. With the colonies came completely different legal systems that were imposed onto the captured land, and which failed to properly recognise the existing structures.
An unfortunate side-effect of action on climate change
Buoyed by renewed global enthusiasm for climate action after the Paris Agreement and the US-China Joint Presidential Statement on Climate Change, the financial community is increasingly turning its mind to what happens when governments act to limit greenhouse gas emissions. Previously, fossil fuel companies had planned to develop approximately five times the amount of fossil fuel than we can safely burn if we are to prevent an average temperature increase of more than 2°C. Capital has been and will continue to be wasted on carbon intensive projects that should not proceed under the new regime; a reality that the market is beginning to wake up to. When this reality truly strikes investors, it may prompt a dangerous market-wide share sale in fossil fuel companies and precipitate a decline in those companies’ market values.
Australians with superannuation fund accounts stand to lose money when this carbon bubble bursts, because most superannuation funds invest in blue chip energy and resources companies such as ExxonMobil, BP, Shell, AGL, Santos and their financiers, large global banks and our Big Four banks in Australia; NAB, Commonwealth Bank, ANZ and Westpac. If and when fossil fuel companies suffer economic hardship because their projects are no longer viable (see, for instance, the bankruptcy of Peabody Energy in mid-April 2016), superannuation members will lose out. As the Asset Owners Disclosure Project Chair and former federal leader of the Liberal Party of Australia, Dr John Hewson, put it, the eventuation of climate risk could “easily precipitate a financial crisis”. Having put its support behind UN action on climate, the G20 has begun turning attention towards how to prevent such a crisis.
Why the risk of stranded asset persists
We all have a degree of leverage to ensure our concerns over the management of climate risk are addressed through our “consumer sovereignty”. Most Australians could easily change superannuation funds to those that are mitigating climate change risk in their investment portfolios. Like any market, if people demand a certain product, it is often supplied by budding entrepreneurs. However, it can be difficult at the best of times to understand whether one superannuation fund is better than another at managing its investment portfolio, let alone climate risk. Considering that many funds present their climate-related information in different ways, and use different metric systems of measurement, it is a tough task to make meaningful comparisons. This presents a concerning information and comprehension gap for consumers that has to be filled.
The G20’s big move
The challenge of providing transparency on climate risk to the financial sector has been recently taken up by the G20, which has asked the Financial Stability Board (‘FSB’) to examine how the financial system can better acknowledge and consider climate change risks. The FSB, made up of the finance ministers and central bank governors of the G20 countries, is a soft law body established in the wake of the Global Financial Crisis which aims to ‘assess vulnerabilities affecting the global financial system and identify…the regulatory, supervisory and related actions needed to address them’ (Art 2(1)(a), FSB Charter).
The FSB has, in turn, established a new Taskforce for Climate-Related Financial Disclosures (‘TCFD’), and appointed three-time mayor of New York City and businessman Michael Bloomberg, to lead the initiative. Its mission is to ‘develop voluntary, consistent climate-related financial risk disclosures for use by companies in providing information to investors, lenders, insurers and other stakeholders’. In its Phase I report (p 2), the TCFD concluded that disclosure by companies currently is ‘fragmented and incomplete’, and this is preventing ‘investors, creditors, and underwriters from accessing information that can inform their decisions’.
Most significantly, the TCFD announced in its Phase I report (p 26) that it will now examine voluntary, common disclosure standards for institutional investors. This will make disclosure frameworks part of the mainstream consciousness of the superannuation sector.
One model for the TCFD to consider is the Asset Owners Disclosure Project (AODP). The AODP aims to rectify the information and comprehension gap, by producing rankings and ratings of the world’s 375 largest superannuation and pension , as well as insurers and sovereign wealth funds, in regard to their management of climate risk. This initiative establishes transparency and comparability between pension funds by using a quick and easy-to-use scale. It encourages pension funds to take the initiative to file shareholder resolutions, which request that companies’ business models comply with a low-carbon economy, create innovative ways of financing renewable energy and reduce exposure to fossil fuel assets.
The forthcoming TCFD disclosure standards will give individual superannuation fund members a bigger source of leverage to demand that climate risk is managed properly. In turn, this will continue to drive competition between superannuation funds and their suppliers, which can only mean better outcomes for members. The information and comprehension gap appears to be closing swiftly and comprehensively. By focusing on transparency and disclosure, the G20 may well consolidate recent climate action successes with the assurance that the transition to a post-fossil fuel world can be more financially stable too.
Joshua Sheppard is a penultimate year law student at Monash University and a project manager for the Asset Owners Disclosure Project.
On 9 March 2016, the Andrew & Renata Kaldor Centre for International Refugee Law, the International Law Association (Australian Branch) and the UNSW Environmental Law Group will co-convene an expert panel discussion on International Law and Sea Level Rise: Human Rights, Displacement, Maritime Zones and Biodiversity.
The panel of expert speakers include:
- Associate Professor Stephen Humphreys, LSE: international human rights law;
- Professor Jane McAdam, UNSW: international law and forced migration; and
- Professor Rosemary Rayfuse, UNSW: international environmental law and law of the sea.
The event will be chaired by Christopher Ward SC, President of the Australian Branch of the International Law Association.
The event will start at 1 pm and finish at 2 pm and will be held at the Law Staff Common Room, Level 2, Law Building UNSW (please see reception on Level 2 for directions).
The event is free. To register pleaseclick here.
Introduction – the 2015 haze pollution crisis
Haze pollution from Indonesian forest fires is an annual environmental disaster in the Southeast Asian region. This year, haze pollution hit the region severely, to an extent far worse than the previous 2013 haze pollution. The Pollutant Standard Index (PSI) in Central Kalimantan reached far above the minimum hazard threshold (350 mg/m3) on 3 October 2015.
The haze pollution this year has not only affected Singapore and Malaysia, who experience it annually, but also reached Thailand. Most of the fires were deliberately caused by human activity to clear peat land for plantation and agriculture. However, El Niño has exacerbated the forest fires, prolonging them for months since the outbreak in August 2015. The El Niño is predicted to continue until November or December 2015.
Poor air quality standards, caused by the fires, have negatively impacted upon peoples’ health across Indonesia and in neighbouring countries. Children, the elderly and people with asthma are the most vulnerable groups, as they are disproportionately affected. Schools are closed due to poor air quality, and the increasing PSI in the Indonesian cities of Kalimantan and Sumatera has recently forced the government to conduct emergency action evacuation plans for these vulnerable groups. Economic activities in the region have been disrupted, with the aviation industry directly affected with many cancellations of flights to the haze-affected areas.
Litigating transboundary environmental disputes in ASEAN
In response to the haze pollution, Singapore has launched legal action against five Indonesian companies, who it blames for starting fires in farm and plantation areas. These companies, including the multinational corporation Asia Pulp and Paper (APP), have been served with preventive measures notices. Last year, Singapore passed Transboundary Haze Pollution Act No 18/2014. This act has extra-territorial application, which allows Singapore’s government to prosecute the external conduct of an entity that causes or contributes to domestic haze pollution. Offenders can be subject to a fine not exceeding AUD$100,000 for each day that there is haze pollution in Singapore. The act was passed in response to frustration at the inability of the Indonesian government to enforce its own laws against corporations responsible for the fires. On another level, it is a response to the inability of the ASEAN Agreement on Transboundary Haze Pollution to address annual and consistently repeated haze pollution. Implementation of the customary international law principle of state responsibility within ASEAN is problematic, because state sovereignty is strongly embedded in the ASEAN Charter. A further complication is the ‘ASEAN Way’, a term describing the approach taken by ASEAN states to avoid interfering in each other’s domestic affairs and to use consensus planning and cooperative programs paired with national implementation, rather than relying on a strong region-wide agency or bureaucracy. Under the international law regarding transboundary pollution, the main obligation is that a state should not cause harm to other territories. The Stockholm and Rio Declarations stated that states have, in accordance with the UN Charter and the principles of international law, the sovereign right to exploit their own resources pursuant to their own environmental and developmental policies. However, they also bear responsibility to ensure that activities within their jurisdiction or control do not cause damage to the environment of other states. Breach of this obligation of environmental protection may make a state responsible for an internationally wrongful act and liable to make reparations for the injury caused under customary international law, as codified in the International Law Commission’s Articles on the Responsibility of States for Internationally Wrongful Acts.
The Singapore Government’s response to haze pollution problem has shifted from state responsibility towards a civil liability regime for transboundary environmental pollution — as adopted in the Transbounday Haze Pollution Bill — and it has its precedents. This approach is in keeping with the work of the International Law Commission on the codification of state responsibility for environmental damage. During the forest fires disaster of 1997–98, Singapore tried to hold the Indonesian Government accountable its failure to control the fires that precipitated a transboundary haze crisis (Tan, 1999). However, insurmountable geo-political resistance to bringing an action against Indonesia under international law meant that this legal action did not materialise (Tan, 2015). Since then, Singapore has launched legal action against Indonesian companies.
Yet the Malaysian Government is refraining from legal action on the basis that it needs to consider potential jurisdictional restrictions under international law. The Malaysian Government can wait and see whether the Singaporean Government succeeds against the offenders. Evidence beyond reasonable doubt is required to prove that the defendant was responsible for causing haze pollution in specific area. Although, current technology can identify the location of forest fire ‘hot spots’, it cannot identify the actor responsible. The primary difficulty is that there is not any one-map policy in Indonesia for identification of concession holders and oil palm companies. Furthermore, land tenure is often disputed in Indonesia. In addition, to obtain remedies, the damage should be quantifiable, the polluters identifiable and there must be clear causation. As a result, civil liability is not a suitable instrument for dealing with pollution of a widespread, diffuse character, where it is impossible to link negative environmental effects with either an act or failure to act by specific actors. In this regard, Singapore’s Government will face difficulties in its suits: Indonesia’s Coordinating Ministry of Political, Legal and Security Affairs has stated that it would not share with Singapore the data of companies who conduct burning activities. Indonesia’s Government argue that domestic law prohibits public disclosure of this information. Yet Article 17 of the Freedom of Information Act No 14/2008 states that there is an exception, as the Government is obliged to inform the public if such information assists the maintenance of natural resources in Indonesia.
Taking legal action against companies in other jurisdictions is challenging, as formal dispute mechanisms can be slow and costly. Alan Tan states that extraterritorial legislation against individuals or companies engaged in transboundary pollution is rare. The first international air pollution case was the Trail Smelter Arbitration 1941. Two states, the United States of America and Canada, were involved in this dispute regarding transboundary fumes causing damage to the property of apple growers in Washington, USA. A dispute between two private parties quickly escalated to the an international-level dispute between states. Obstacles prevented the national courts from exercising jurisdiction during the original Trail Smelter dispute, as the American courts faced difficulties with personal jurisdiction, extraterritorial application of law and the extraterritorial enforcement of its decision — a Canadian Court would not have been able to enforce an American decision.
Additionally, international mechanisms do not provide a useful forum for private parties to resolve Trail Smelter-type disputes, according to Kerkhof. In recent years, there have been a number of multilateral and bilateral initiatives to improve the ease with which as court can be accessed to address transboundary pollution issues. One of these initiatives is the OECD’s recommendation on the Implementation of a Regime of Equal Right of Access and Non-Discrimination in relation to Transfrontier Pollution, but it is not binding. In the USA, the most recent and successful step towards access for justice in cases of transboundary pollution is the Uniform Transboundary Pollution Reciprocal Access Act.
It seems unlikely that ASEAN will establish a liability regime to protect the environment within its own legal framework. ASEAN has a stronger emphasis on prevention and cooperation (rather than determination of liability) when responding to haze pollution or environmental issues. Therefore, Singapore’s legal suits are an important indicator for the future, as success would be a breakthrough for the development of liability regimes in international law and ASEAN.
Litigating environmental disputes is one solution to obtain compensation and deter offenders. However, in seeking compensation or remedies in the environmental sphere, initial barriers lie in proving causation, identifying the polluters and evaluating the claim for the damages. In the case of long distance transboundary pollution, such as air pollution, it is often difficult to identify the sources of the pollution and the polluters themselves. There is also a problem of scientific uncertainty, particularly given the complexity of environmental problems. Even though Transboundary Haze Pollution Act has limited implementation, it represents robust development in ASEAN’s legal framework for haze pollution.
One solution would be to deal with land and forest fires in accordance with international environmental principles and changing attitudes on the ‘ASEAN Way’. However, to ignore the ‘ASEAN Way’ is not legally possible, as those principles are part of the ASEAN Charter. Improving transnational cooperation is an alternative option, particularly by increasing capacity building efforts for local people.
Where international action fails, other solutions exist, such as reform to peatland management and law enforcement in Indonesia. Another solution to deal with land/forest fires is to change attitudes at local level, particularly amongst the companies and local communities who use burning practices. Strengthening community based fire management and activating and revitalising adat, or local customary law, institutions are key to addressing haze pollution and improving environmental protection.
Dr. Laely Nurhidayah, Researcher Indonesian Institute of Sciences (LIPI) (Macquarie University Graduate)